FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended October 30, 1999
Commission file number 001-13143
BJ'S WHOLESALE CLUB, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3360747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 651-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- ------
The number of shares of the Registrant's common stock outstanding as of November
27, 1999: 73,512,296.
PART I. FINANCIAL INFORMATION
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
-----------------------------------
October 30, October 31,
1999 1998
------------ --------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 990,638 $ 828,477
Membership fees and other 23,336 19,335
----------- ------------
Total revenues 1,013,974 847,812
----------- ------------
Cost of sales, including buying and occupancy costs 900,383 756,553
Selling, general and administrative expenses 73,755 65,311
Preopening expenses 2,504 2,531
----------- ------------
Operating income 37,332 23,417
Interest (income) expense, net (841) (236)
----------- ------------
Income before income taxes 38,173 23,653
Provision for income taxes 14,839 9,225
----------- ------------
Net income $ 23,334 $ 14,428
=========== ============
Net income per common share:
Basic $ 0.32 $ 0.19
=========== ============
Diluted $ 0.31 $ 0.19
=========== ============
Number of common shares for earnings per share computations:
Basic 73,582,931 74,794,712
Diluted 75,290,420 75,962,876
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirty-Nine Weeks Ended
-----------------------------------------
October 30, October 31,
1999 1998
---------------- ----------------
(Dollars in Thousands except Per Share Amounts)
Net sales $ 2,864,438 $ 2,442,828
Membership fees and other 66,176 54,902
------------ -----------
Total revenues 2,930,614 2,497,730
------------ -----------
Cost of sales, including buying and occupancy costs 2,609,993 2,231,811
Selling, general and administrative expenses 211,841 187,402
Preopening expenses 7,159 5,094
Pension termination costs - 1,521
------------ -----------
Operating income 101,621 71,902
Interest (income) expense, net (1,949) (456)
------------ -----------
Income before income taxes and cumulative effect of
accounting principle changes 103,570 72,358
Provision for income taxes 40,082 28,220
------------ -----------
Income before cumulative effect of accounting principle changes 63,488 44,138
Cumulative effect of accounting principle changes - (19,326)
------------ -----------
Net income $ 63,488 $ 24,812
============ ===========
Net income per common share:
Basic earnings per share:
Income before cumulative effect of accounting principle changes $ 0.86 $ 0.59
Cumulative effect of accounting principle changes - (0.26)
------------ -----------
Net income $ 0.86 $ 0.33
============ ===========
Diluted earnings per share:
Income before cumulative effect of accounting principle changes $ 0.84 $ 0.58
Cumulative effect of accounting principle changes - (0.26)
------------ -----------
Net income $ 0.84 $ 0.32
============ ===========
Number of common shares for earnings per share computations:
Basic 73,702,223 75,107,576
Diluted 75,400,176 76,376,870
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 30, January 30, October 31,
1999 1999 1998
----------- ----------- ----------
(Dollars in Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 7,635 $ 12,150 $ 7,675
Marketable securities 1,582 100 98
Accounts receivable 45,922 51,134 41,582
Merchandise inventories 503,793 372,740 430,373
Current deferred income taxes 8,596 7,859 7,492
Prepaid expenses 11,404 12,607 10,126
----------- ----------- ----------
Total current assets 578,932 456,590 497,346
----------- ----------- ----------
Property at cost:
Land and buildings 336,939 322,712 307,569
Leasehold costs and improvements 49,544 45,861 43,745
Furniture, fixtures and equipment 260,650 236,231 221,657
----------- ----------- ----------
647,133 604,804 572,971
Less accumulated depreciation and amortization 191,665 168,957 160,858
----------- ----------- ----------
455,468 435,847 412,113
----------- ----------- ----------
Property under capital leases 6,219 6,219 6,219
Less accumulated amortization 2,074 1,949 1,908
----------- ----------- ----------
4,145 4,270 4,311
----------- ----------- ----------
Other assets 11,834 10,923 10,603
----------- ----------- ----------
Total assets $ 1,050,379 $ 907,630 $ 924,373
=========== =========== ==========
LIABILITIES
Current liabilities:
Accounts payable $ 345,166 $ 213,702 265,373
Accrued expenses and other current liabilities 117,717 121,951 100,998
Accrued federal and state income taxes 8,574 11,757 (4,279)
Obligations under capital leases due within one year 215 201 197
----------- ----------- ----------
Total current liabilities 471,672 347,611 362,289
----------- ----------- ----------
Long-term debt - 30,000 64,500
Obligations under capital leases, less portion
due within one year 2,103 2,249 2,297
Other noncurrent liabilities 36,907 34,928 38,409
Deferred income taxes 7,495 7,800 5,547
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,184,588, 73,805,000
and 37,706,138 shares 742 738 377
Additional paid-in capital 81,856 78,376 108,338
Retained earnings 469,416 405,928 368,286
Treasury stock, at cost, 706,828, 0 and 710,384 shares (19,812) - (25,670)
----------- ----------- ----------
Total stockholders' equity 532,202 485,042 451,331
----------- ----------- ----------
Total liabilities and stockholders' equity $ 1,050,379 $ 907,630 $ 924,373
=========== =========== ==========
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
---------------------------------
October 30, October 31,
1999 1998
------------ ------------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,488 $ 24,812
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting principle changes - 19,326
Depreciation and amortization of property 34,348 30,310
Loss on property disposals 696 174
Other noncash items (net) 59 131
Deferred income taxes (1,042) 56
Increase (decrease) in cash
due to changes in:
Accounts receivable 5,212 (3,260)
Merchandise inventories (131,053) (98,099)
Prepaid expenses 1,203 2,484
Other assets (955) 307
Accounts payable 131,464 64,987
Accrued expenses 5,366 3,883
Accrued income taxes (3,183) 1,068
Other noncurrent liabilities 1,979 2,013
---------- -----------
Net cash provided by operating activities 107,582 48,192
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (1,582) (95)
Maturity of marketable securities 100 -
Property additions (64,171) (55,390)
Proceeds from property disposals 31 214
---------- -----------
Net cash used in investing activities (65,622) (55,271)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (132) (121)
Borrowing (repayment) of long-term debt (30,000) 22,000
Purchase of treasury stock (26,645) (26,173)
Proceeds from sale and issuance of common stock 10,302 5,147
Contribution to capital by Waban Inc. - 1,188
---------- -----------
Net cash provided by (used in) financing activities (46,475) 2,041
---------- -----------
Net decrease in cash and cash equivalents (4,515) (5,038)
Cash and cash equivalents at beginning of year 12,150 12,713
---------- -----------
Cash and cash equivalents at end of period $ 7,635 $ 7,675
========== ===========
Supplemental cash flow information:
Interest paid $ 194 $ 196
Income taxes paid 44,307 27,096
Noncash financing and investing activities:
Treasury stock issued for compensation plans 6,833 -
The accompanying notes are an integral part of the financial statements.
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands except Per Share Amounts)
------------------------------------------------------------------------------------
Common Additional Total
Stock Paid-in Retained Treasury Stockholders'
Par Value $.01 Capital Earnings Stock Equity
---------------- ------------- ------------ -------------- -------------
Balance, January 31, 1998 $ 375 $ 102,408 $ 343,474 $ - $ 446,257
Net income - - 24,812 - 24,812
Sale and issuance of common stock 2 4,742 - 503 5,247
Purchase of treasury stock - - - (26,173) (26,173)
Contribution to capital by Waban Inc. - 1,188 - - 1,188
---------------- ------------- ------------ -------------- -------------
Balance, October 31, 1998 $ 377 $ 108,338 $ 368,286 $ (25,670) $ 451,331
================ ============= ============ ============== =============
Balance, January 30, 1999 $ 738 $ 78,376 $ 405,928 $ - $ 485,042
Net income - - 63,488 - 63,488
Sale and issuance of common stock 4 3,480 - 6,833 10,317
Purchase of treasury stock - - - (26,645) (26,645)
---------------- ------------- ------------ -------------- -------------
Balance, October 30, 1999 $ 742 $ 81,856 $ 469,416 $ (19,812) $ 532,202
================ ============= ============ ============== =============
The accompanying notes are an integral part of the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the quarter and nine months ended October 30, 1999 are not
necessarily indicative of the results for the full fiscal year or any future
period because, among other things, the Company's business, in common with the
business of retailers generally, is subject to seasonal influences. The
Company's sales and operating income have historically been strongest in the
fourth quarter holiday season and lowest in the first quarter of each fiscal
year.
2. The interim financial statements are unaudited and reflect all normal
recurring adjustments considered necessary by the Company for a fair
presentation of its financial statements in accordance with generally accepted
accounting principles.
3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes in the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1999.
4. The Company completed a two-for-one stock split on March 2, 1999 in the form
of a 100% stock dividend paid to stockholders of record as of February 16, 1999.
All historical earnings per share amounts have been restated to reflect the two-
for-one split.
5. During the quarter ended May 2, 1998, the Company recorded a pre-tax charge
of $1.5 million in connection with the termination of the Waban Inc. Retirement
Plan, in which certain of the Company's employees participated. On a post-tax
basis, this charge amounted to $.9 million, or $.01 per diluted share.
6. During the fiscal year ended January 30, 1999, the Company adopted changes
in methods of accounting for membership fee revenues and preopening expenses.
The Company recorded a noncash post-tax charge of $19.3 million, or $.26 per
diluted share, as of the beginning of the fiscal year to reflect the cumulative
effect of these accounting principle changes.
7. The following details the calculation of earnings per share ("EPS") for the
periods presented below (amounts in thousands except per share amounts):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
---- ---- ---- ----
Income before cumulative effect of
accounting principle changes $23,334 $14,428 $63,488 $44,138
======= ======= ======= =======
Weighted-average number of common
shares outstanding, used for basic
computation 73,583 74,795 73,702 75,108
Plus: Incremental shares from assumed
conversion of stock options 1,707 1,168 1,698 1,269
------- ------- ------- ------
Weighted-average number of common
and dilutive potential common shares
outstanding 75,290 75,963 75,400 76,377
======= ======= ======= ======
Basic income per share before
cumulative effect of accounting
principle changes $ 0.32 $ 0.19 $ 0.86 $ 0.59
======= ======= ======= =======
Diluted income per share before
cumulative effect of accounting
principle changes $ 0.31 $ 0.19 $ 0.84 $ 0.58
======= ======= ======= =======
Options to purchase a total of 595,300 shares at a weighted-average exercise
price of $29.73 were outstanding at October 30, 1999, but were not included
in the computation of diluted EPS for the nine-month period then ended
because the options' exercise price was greater than the average market
price of the common shares during that period. All outstanding options were
included in the computation of diluted EPS for the third quarter ended
October 30, 1999.
8. The Company operated 103 clubs on October 30, 1999 versus 90 clubs on
October 31, 1998.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Third Quarter) and Thirty-Nine Weeks Ended October 30, 1999
versus Thirteen and Thirty-Nine Weeks Ended October 30, 1998.
Results of Operations
- ---------------------
Net sales for the third quarter ended October 30, 1999 rose 19.6% to $991
million from $828 million reported in last year's third quarter. Net sales for
the first nine months of the year totaled $2.9 billion, 17.3% higher than last
year's comparable period. These increases were due to the opening of new stores
and to comparable store sales increases of 7.8% in the third quarter and 6.7%
year-to-date.
Total revenues in the third quarter included membership fees of $20.3 million
versus $16.7 million in last year's third quarter, an increase of 21.8%. Year-
to-date membership fees were $58.3 million versus $48.0 million last year, an
increase of 21.7%. Membership fee revenues are recognized over the life of the
membership, which is typically twelve months. Consequently, this year's results
benefited from an increase in the membership fee for "Inner Circle" members from
$30 to $35, effective February 1, 1998 and, to a lesser extent, an increase in
the membership fee for business members from $30 to $35, effective February 1,
1999.
Cost of sales (including buying and occupancy costs) was 90.9% of net sales in
this year's third quarter compared with 91.3% in last year's third quarter. For
the first nine months, the cost of sales percentage was 91.1% this year versus
91.4% last year. These improvements were due both to a favorable merchandise
mix, which benefited gross margin, and to leveraging fixed buying and occupancy
costs against strong comparable store sales, particularly in the third quarter.
Selling, general and administrative ("SG&A") expenses were 7.4% of net sales in
the third quarter versus 7.9% in last year's comparable period. Year-to-date
SG&A expenses were 7.4% of net sales this year versus 7.7% last year. These
decreases were attributable mainly to leveraging fixed expenses against both
increased comparable store sales and a growing number of clubs and to cost
savings resulting from a new medical benefit program for employees that became
effective on January 1, 1999.
Preopening expenses were $2.5 million in both this year's and last year's third
quarters. Year-to-date preopening expenses totaled $7.2 million this year versus
$5.1 million last year. The Company opened seven new clubs in the first nine
months of this year, three of them in the third quarter. Last year the Company
opened six new clubs in the first nine months, two of them in the third quarter.
Some preopening expenses for two clubs which opened in February 1998 were
incurred in the prior fiscal year.
During the quarter ended May 2, 1998, the Company recorded a pre-tax charge of
$1.5 million in connection with the termination of the Waban Inc. Retirement
Plan, in which certain of the Company's employees participated. On a post-tax
basis, this charge amounted to $.9 million, or $.01 per diluted share.
Operating income in the third quarter rose to $37.3 million, an increase of
59.4% over last year's third quarter operating income of $23.4 million. Year-to-
date operating income this year was $101.6 million, 38.4% higher than last
year's $73.4 million before pension termination costs.
The components of net interest (income) expense were as follows (in thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
---- ---- ---- ----
Interest expense on debt $ 70 $ 151 $ 242 $ 600
Capitalized interest (21) (218) (200) (537)
Interest income (952) (236) (2,178) (719)
----- ----- ------ -----
Interest on debt (net) (903) (303) (2,136) (656)
Interest on capital leases 62 67 187 200
----- ----- ------ -----
Interest (income) expense, net $(841) $(236) $(1,949) $(456)
===== ===== ======= =====
This year's increase in net interest income was due primarily to higher levels
of investments and lower borrowing levels.
The Company's year-to-date provision for income taxes was 38.7% of pre-tax
income this year versus 39.0% in last year's comparable period. This year's tax
rate is lower than last year due to a reduction in the effective state income
tax rate expected for the full year.
Third quarter net income was $23.3 million, or $.31 per diluted share, compared
with $14.4 million, or $.19 per diluted share, in last year's third quarter. Net
income in this year's first nine months was $63.5 million, or $.84 per diluted
share, versus income before the cumulative effect of accounting principle
changes of $44.1 million, or $.58 per diluted share, in last year's comparable
period.
The Company adopted changes in methods of accounting for membership fee revenues
and preopening expenses as of the beginning of last year. Including a noncash
post-tax charge of $19.3 million, or $.26 per diluted share, to reflect the
cumulative effect of these changes, the Company posted net income of $24.8
million, or $.32 per diluted share, in the first nine months of 1998.
Over the remainder of the year, the Company expects to continue to benefit from
the increases in the cost of membership fees, although the effect of last year's
increase in the Inner Circle membership fee will diminish because membership fee
income is recognized over the life of the membership, which is typically twelve
months. The Company also expects to continue to benefit from the changes in the
Company's medical benefit program for employees in the fourth quarter; compared
to the first three quarters, the impact of these changes is expected to be
somewhat less in the fourth fiscal quarter, as they became effective on January
1, 1999. Preopening expenses may vary from quarter to quarter depending on the
timing and number of club openings.
Year 2000 Compliance
- --------------------
The Company has worked for several years to prepare its financial, merchandising
and other information technology ("IT") systems for the Year 2000. The Company
believes that its Year 2000 assessment, remediation and testing efforts with
regard to IT systems is substantially
complete. All of the Company's major IT systems have been assessed for Year 2000
compliance and the Company believes that currently known Year 2000 issues have
been remedied. Based on these efforts, the Company does not believe that Year
2000 issues related to IT systems will have a material adverse effect on the
Company's results of operations, financial position or cash flows. The Company
intends to retest systems which are modified or upgraded before January 1, 2000
for Year 2000 compliance, regardless of whether the modification is related to
the Year 2000 issue, and has instituted a moratorium on all new systems
applications for its fourth quarter of 1999. Since August 1998, the Company
successfully conducted four disaster recovery tests simulating dates beyond Year
2000. All of the Company's Year 2000 testing has been performed in tandem with
the Company's third-party data processing center.
The Company has also been reviewing its major non-IT systems for Year 2000
issues, including refrigeration, security and utilities systems. BJ's estimates
that its Year 2000 assessment, remediation and testing efforts with regard to
non-IT systems are substantially complete. Based on these efforts, the Company
does not believe that Year 2000 issues related to non-IT systems will have a
material adverse effect on the Company's results of operations, financial
position or cash flows.
BJ's is working with key vendors and other third parties with whom it does
business in an effort to minimize the potential adverse impact on the Company if
they fail to address the Year 2000 issue successfully. The Company has a
committee, with representatives from various departments in the Company, which
is examining the Year 2000 readiness of the Company's business partners. The
Company sent a questionnaire regarding Year 2000 issues to more than 900 of its
business partners, including its 200 highest volume merchandise vendors, all
active freight vendors, 100 of its highest volume non-merchandise vendors and a
random sample of other vendors. A review of these responses did not indicate
any Year 2000 issues that are expected to materially impact the Company. The
Company may seek alternate sources to replace vendors who are not expected to be
Year 2000 compliant. The Year 2000 committee has also been evaluating the Year
2000 readiness of key third parties or vendors who share data with the Company,
including banks and mail houses. Although some of the Company's agreements with
manufacturers and its merchandise vendors contain provisions requiring them to
indemnify the Company under some circumstances, there can be no assurance that
such indemnification arrangements would cover all of the Company's liabilities
and costs, if any, in connection with claims related to the Year 2000 issue.
BJ's estimates that its total historical and anticipated costs of Year 2000
assessment, remediation and testing will total approximately $1.6 million,
including estimated internal payroll costs. Substantially all of this total has
been incurred as of October 30, 1999.
The Company believes that its most likely worst case Year 2000 scenario would
probably result from a large number of key third parties with whom the Company
does business not being Year 2000 compliant. Among the factors that would tend
to mitigate the consequences of this scenario are that the Company sells a broad
assortment of products and is not dependent on any particular class of
merchandise; the Company is not dependent on a small number of vendors; the
Company purchases most of its inventory from well-established, brand name
vendors; and there are expected to be alternate sources to replace merchandise
vendors who encounter Year 2000 problems. However, there can be no assurance
that the third parties with whom the Company does business will be successful in
addressing the Year 2000 issue or that their failure to successfully address the
issue will not have an adverse effect on the Company's financial condition and
results of operations. Based on its current assessment of Year 2000 readiness,
the Company does not plan to develop a formal contingency plan to address this
or other scenarios.
However, the Company has prepared a guide for all of its locations to address
potential issues which might arise at the time of the millennium change and
plans to have information systems personnel on duty around the clock at that
time to help deal with those issues.
The foregoing discussion of the Company's Year 2000 readiness contains forward-
looking statements, including estimates of the costs of the Company's Year 2000
implementation efforts and the status of those efforts. Such statements are
based upon management's current estimates, using numerous assumptions regarding
future events, including the continued availability of certain resources, third
party remediation plans, and other factors. There can be no assurance that
these forward-looking statements will prove to be accurate, and actual results
could differ materially from those currently anticipated. Factors that could
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability to
assess, remedy and test all relevant computer code and embedded technology, the
ability of third parties with whom the Company has business relationships
(including its third-party data processing center) to successfully address their
Year 2000 issues and similar uncertainties.
The foregoing information is intended to qualify as "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act to the maximum amount permitted by such Act.
Seasonality
- -----------
The Company's business, in common with the business of retailers generally, is
subject to seasonal influences. The Company's sales and operating income have
historically been strongest in the fourth quarter holiday season and lowest in
the first quarter of each fiscal year.
Recent Accounting Standards
- ---------------------------
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. The adoption of
this statement, which currently becomes effective in 2001, is not expected to
have a material impact on the Company's results of operations, financial
position or cash flows or to produce any major changes in current disclosures.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $107.6 million in the first nine
months of 1999 versus $48.2 million in last year's comparable period. The
increase over last year in cash provided by operating activities was
attributable mainly to the change in merchandise inventories, net of accounts
payable, and the increase in income before the cumulative effect of accounting
changes.
Cash expended for property additions was $64.2 million in the first nine months
of 1999 versus $55.4 million in the comparable period in 1998. The Company has
opened seven new clubs year-to-date this year versus six new clubs in the same
period last year. The Company's capital expenditures are expected to total
approximately $90 million in 1999, based on plans to open approximately eleven
new clubs (including the new clubs already opened this year). The timing of
actual club openings and the amount of related expenditures could vary from
these estimates due, among other things, to the complexity of the real estate
development process.
In August 1999, the Company completed its repurchase of $50 million of the
Company's common stock, which had been authorized by the Board of Directors in
August 1998. On September 16, 1999, the Board authorized the repurchase of an
additional $50 million of the Company's common stock. During the first nine
months of 1999, the Company repurchased 965,100 shares of common stock for $26.6
million, or an average price of $27.61 per share. As of October 30, 1999, the
Company's remaining repurchase authorization was $42.4 million.
The Company has a $200 million unsecured credit agreement with a group of banks
which expires July 9, 2002. The agreement includes a $50 million sub-facility
for letters of credit, of which $3.4 million was outstanding at October 30,
1999. The Company is required to pay an annual facility fee which is currently
0.10% of the total commitment. Interest on borrowings is payable at the
Company's option either at (a) the Eurodollar rate plus a margin which is
currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation and prohibit the payment of cash dividends on the Company's common
stock. In September 1999, the agreement was amended to generally limit the
cumulative repurchase of the Company's common stock to $50 million plus 50% of
Net Income (as defined by the agreement) after January 30, 1998.
The Company also maintains a separate $38 million facility for letters of
credit, primarily to support the purchase of inventories, of which $2.7 million
was outstanding at October 30, 1999, and an additional $20 million uncommitted
credit line for short-term borrowings.
Increases in merchandise inventories and accounts payable since the end of the
previous fiscal year were due mainly to normal seasonal requirements and new
stores. Increases in inventories and accounts payable compared to the end of
last year's third quarter were due primarily to new stores.
Cash and cash equivalents totalled $7.6 million as of October 30, 1999, and
there were no borrowings outstanding on that date. The Company expects that its
current resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through the fiscal year ending February 3,
2001. However, the Company may from time to time seek to obtain additional
financing.
Factors Which Could Affect Future Operating Results
- ---------------------------------------------------
This report contains a number of "forward-looking statements," including
statements regarding the expected impact of changes in membership fees and the
Company's medical benefit program for employees, the expected effective income
tax rate for 1999, planned capital expenditures, planned store openings, Year
2000 compliance and other information with respect to the Company's plans and
strategies. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"estimates," "expects" and similar expressions are intended to identify forward-
looking statements. There are a number of important factors that could cause
actual events or the Company's actual results to differ materially from those
indicated by such forward-looking statements, including, without limitation:
economic and weather conditions; state and local regulation in the Company's
markets; competitive conditions; contingent liabilities under the Company's
indemnification agreement with The TJX Companies,
Inc.; and events which might cause the Company's spin-off from Waban (now known
as HomeBase, Inc.) not to qualify for tax-free treatment. Each of these factors
is discussed in more detail in the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1999.
Other factors which could affect future operating results of the Company
include, without limitation, the successful implementation of the Company's Year
2000 remediation plans, the success of the Company's key vendors and other third
parties in achieving Year 2000 compliance and new club opening plans discussed
above.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company believes that its potential exposure to market risk as of October
30, 1999 is not material because of the short contractual maturities of its
cash, cash equivalents, marketable securities and bank debt. The Company has
not used derivative financial instruments.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.7 BJ's Wholesale Club, Inc. 1997 Director Stock Option
Plan (as amended through May 27, 1999)*
10.13a Amended and Restated Change of Control Severance
Agreement between the Company and John J. Nugent*
10.19 Amended and Restated Form of Change of Control Severance
Agreement between the Company and officers of the
Company*
10.22b Second Amendment dated as of September 21, 1999 to Credit
Agreement dated July 9, 1997
27.0 Financial Data Schedule
* Management contract or other compensatory plan or
arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended
October 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BJ'S WHOLESALE CLUB, INC.
-------------------------
(Registrant)
Date: December 10, 1999 /s/ JOHN J. NUGENT
-------------------------- ----------------------------------
John J. Nugent
President and Chief Executive Officer
(Principal Executive Officer)
Date: December 10, 1999 /s/ FRANK D. FORWARD
-------------------------- ----------------------------------
Frank D. Forward
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)